Hon Chairperson, Ministers, Deputy Ministers, members, distinguished guests, ladies and gentlemen, we are honoured to present to this Extended Public Committee today our Budget Vote for the 2013-14 financial year.
Our portfolio of state-owned companies, SOCs, has been aggressively accelerating investment to maintain aggregate demand precisely when there is a downturn globally and the private sector is too apprehensive to invest. Three years ago, our portfolio of SOCs invested R53 billion, but in the next financial year we will be investing over R113 billion.
I wish to state unequivocally that, in relation to industrialisation and transformation, we have an unyielding political will. In October 2012 we convened a transformation dialogue as the first step in the development of a transformation framework and guidelines for SOCs to be launched during the course of the 2013-14 financial year.
Having awarded the single largest audit appointment to a South African black-owned auditing practice, Sizwe Ntsaluba Gobodo, Transnet went further to award a R1,3 billion internal audit contract to a group of three audit firms led by Sekela Xabiso, involving Nkonki and KPMG.
Furthermore, Eskom's total procurement spend for the 2012-13 financial year was about R120 billion and the total spend on black economic empowerment compliant companies was R103,4 billion, which is 86,3%, against the target of 70%.
As at February 2013, the BEE spend at Transnet stood at R58 billion, or 87% of total procurement spend. The procurement of the 1 064 Transnet locomotives we spoke about last year is now far advanced and shall be concluded in due course. This historic procurement will result in the development of qualitatively new industrial capabilities and the comprehensive transformation of the locomotive supply chain.
Pursuant to the commitment made in the last Budget Vote debate, the Department of Public Enterprises held the Supplier Development Summit. It was attended by the suppliers, customers and other key stakeholders of our state-owned companies. At the summit, the SOCs communicated their next- generation supplier development, localisation and transformation plans and further explored how they and large companies in strategic sectors can collaborate around supplier development to create a truly national effort towards achieving our objectives. I am confident that within the next six months we will have some exciting announcements to make in this regard.
In the coming year, we will be mobilising our entire portfolio of SOCs, along with their customers and suppliers, to give added momentum to a comprehensive industrialisation and transformation agenda in our economy. As part of this, we will be exploring set-asides and other mechanisms to accelerate radically the promotion of black industrialists and the entrance into the mainstream economy of businesses owned by the youth and women.
We will be reaching out to our large private-sector customers and suppliers in the resource extraction and processing sectors to partner with us in our developmental programmes. We will also be drawing on our influence over SOC- related pension funds to provide additional leverage to this process. The details of this programme will be unveiled at a later stage.
I will now provide you with an overview of how we are directing our SOCs to achieve their developmental mandates while ensuring that they remain financially sustainable. Eskom continues to increase its investment, with R58 billion spent in the past year. During the past financial year, 260 MW of generating capacity has been added to the system by returning to service previously mothballed plants, and a further 787 km of high-voltage transmission lines were installed. This year Eskom will be spending about R65 billion - and R337 billion over the next five years - to complete Medupi, Kusile and Ingula. Eskom has committed itself to ensuring that the first unit of Medupi starts delivering power by the end of this year.
The commercial operation of the Sere wind power plant, which will save an estimated 252 603 tons of carbon emissions per annum, is scheduled for 30 December 2014 at a total cost of R2,4 billion, of which R104 million has been spent to date. The draft procurement strategy for the concentrating solar power plant in the Northern Cape, estimated to cost around R9 billion, has been completed and will be finalised after it has gone through Eskom's internal governance processes.
Eskom's funding plan for the currently committed build programme has been finalised and about 82% of the funding has been secured. We note the decision of the National Energy Regulator of South Africa, Nersa, of an 8% average increase annually over the next five years and we are analysing its full implications for Eskom. As a shareholder, we are committed to ensuring that Eskom remains sustainable and is able to deliver on its build commitments.
The electricity supply system continues to experience constraints, but we have put comprehensive plans in place to manage this. Evidence from a survey commissioned by Eskom suggests that our efforts at mobilising the population around the energy-saving campaign are bearing fruit and the level of awareness of the 49M campaign is as high as 73%. As we approach the winter season, and in order to intensify communication and make South Africans participate in monitoring their own personal impact, Eskom and the SABC have collaborated to create an exciting initiative to educate and inform consumers about the country's electricity status. This will be launched tomorrow.
Over five years, Eskom is projected to spend over R200 billion on the supply of coal. In light of this, I had an engagement with established miners, the Chamber of Mines, the SA Mining Development Association, Samda, and emerging miners in the coal and limestone value chain during which I also launched the Black Emerging Miners Strategy. The essence of this initiative is to increase black participation and ownership in the coal mining sector. A key element of this strategy is to establish a mine development fund to provide finance for the development of mines, mainly at the early exploration stage. We intend to ensure that by 2018 Eskom will procure more than 50% of its coal from emerging black coal miners, which would be a significant act of transformation. To date, significant work has been done to establish the fund, which will go into operation by the end of the 2013-14 financial year.
I am pleased to report that the implementation of Transnet's market demand strategy is on track. This past year, we have seen a 5% growth in rail volumes, a 4,8% overall improvement in operational efficiencies and a 30% increase in capital invested in the build programme to just below R30 billion. This strong performance has enabled the company to adopt a countercyclical investment strategy with a plan to invest R37 billion this coming financial year and about R307 billion over the next seven years.
Transnet has risen to the challenge of driving industrialisation in our economy by the way it is pricing its services to relevant customers, by the internal development of industrial capabilities and by the way that it procures from suppliers. An amount of R700 million was disbursed in the 2012-13 financial year from the R1 billion ports rebate to the exporters of manufactured goods announced last year. The remaining R300 million will be disbursed this year.
Transnet has put proposals to the Ports Regulator for a ports pricing strategy that reverses the historical legacy which favoured bulk commodities at the expense of containerised manufactured goods. We have also established a task team involving the department, the Department of Trade and Industry and the Transnet National Ports Authority to develop joint strategies to promote investment in port-dependent sectors that are prioritised in our Industrial Policy Action Plan.
We saw progress in 2012 in positioning Transnet Engineering as a rail and ports manufacturing centre for Africa. Transnet Engineering invested R1,3 billion in new technology, equipment and plant upgrading in the year 2012-13 and plans to invest a further R954 million during this financial year. At present Transnet Engineering has an order book for stock of over R1 billion for locomotives, wagons and coaches for six countries in Africa.
Our objective in owning Transnet Engineering is to develop strategic industrial capabilities relating to Transnet's business while supporting the growth of a broader private sector rail and ports supplier cluster. We have made significant progress in the past year in defining the role of Transnet Engineering in relation to the private sector and will continuously engage with the private sector around our approach.
Building intermediate and advanced industrial capabilities will require enormous effort by all stakeholders in the South African economy. In the coming year, we will be exploring how we can more coherently leverage the capabilities in Denel, Transnet Engineering and Rotek to support the localisation of strategic and complex industrial components.
Broadband Infraco, BBI, has been stabilised over the past financial year with all key management positions having been filled. The company invested R140 million during the past year and has plans this financial year to spend over R700 million to upgrade technology and improve network performance and reach. This should enhance the company's competitiveness and value proposition to both public and private customers.
Building on this enhanced position, and with the department's support, the company will this coming year focus on ensuring that government becomes an anchor tenant at national, provincial and municipal levels. In this regard, I am pleased to announce that the Department of Science and Technology has taken up 70% of the capacity associated with the Black Business Initiative's investment in the West Africa Cable System, WACS, in support of the Square Kilometre Array project. The department continues to work with the company on a detailed funding plan to ensure that the infrastructure roll-out takes place and that the company is placed on a stable footing. Given the acceleration of our investment programme and the key role played by our SOCs in the strategic integrated projects, SIPs, a number of initiatives has been undertaken to enhance our ability to design, fund, manage and oversee megaprojects: Eskom has codified the lessons it has learnt in implementing the build programme into a comprehensive toolkit and has established an Institute for Project Management Excellence to provide training based on this toolkit. We are exploring how to make this a resource that all our SOCs and broader government can draw on to enhance their ability to manage complex megaprojects.
The boards of Eskom and Transnet have established subcommittees that will have the specific responsibility of monitoring progress on the build programmes.
The department has established a project oversight unit that will focus on intelligently monitoring and adding value to the SOCs infrastructure roll- out programme as well as to the SIPs, where the executing authority or SOCs in the Department of Public Enterprises portfolio play a leading role.
We have also established a funding capability within the department to work with our SOCs to see how we can draw on new sources of equity finance for the build programme. A task team has already been established with Transnet and the Chamber of Mines to explore the funding of specific projects. It is no secret that the SA Airways has had a turbulent year in terms of its leadership and governance. I hope that the appointment of the new CEO, Mr Monwabisi Kalawe, and the finalisation of the long-term turnaround strategy will provide SAA with the stability, leadership and direction it requires to turn around decisively. I am cognisant of the fact that SAA has produced a number of turnaround plans over the past 10 years, yet none has put the airline on a sustainable footing. Consequently, the Department of Public Enterprises, in collaboration with the SAA board, will be designing a special governance arrangement to ensure that we are able to rigorously monitor progress on the implementation of this new strategy.
I am happy to report that SAA has already begun to implement its turnaround strategy and achieved its cost-compression target of R1,3 billion for the year ending March 2013. Next year we will focus on ensuring that SAA's cash position is stabilised, the cost-compression programme is accelerated, the international network is reviewed and the long-term fleet plan is finalised.
During the next quarter, SAA will start taking delivery of a fleet of 20 Airbus A320 aircraft, valued to the order of R10 billion. This forms part of a broader fleet replacement plan that aims to address the fuel inefficiency of SAA's current long-haul fleet. As reported last year, we have been working with the board of South African Express to address internal control challenges in the airline. To this end, the 2010-11 financial statements were tabled in Parliament on 25 April 2013. The board of South African Express plans to have all outstanding audits finalised by the end of July.
As with SAA, the department and the board of South African Express are working to develop a comprehensive turnaround strategy for the company. It is pleasing to note that South African Express cut R129 million in costs in the past financial year. During the coming year, South African Express will continue to focus on enhancing efficiencies and cutting costs, improving customer service and enhancing internal controls.
Denel returned an unaudited profit of R60 million in the 2012-13 financial year, breaking a long stretch of losses. This turnaround is a result of implementing a strategy of global alliances to supplement the domestic revenues. Last year Denel signed R3,7 billion in new, predominantly export orders. Denel received a R1,85 billion government guarantee and a R700 million capital injection in order to position the company to access these international orders.
In the coming year, the company will continue with its three-year plan to consolidate its structure and cost base. We will be focusing on ensuring the success of the Hoefyster infantry combat vehicle production programme and further positioning the business for collaborative product development opportunities, with a focus on Latin America, Africa, Asia and the Middle East.
The department will be also working with SAA to ensure that the supplier development obligations associated with the SAA fleet renewal contribute to the expansion of Denel's aero structures, engineering and maintenance capabilities. In addition, the department will rigorously interrogate how synergies between SAA Technical, South African Express Technical and Denel Aviation in the maintenance, repair and overhaul space can be captured to create an organisation with the credibility to capture the growing air traffic through South Africa.
SOCs continue to play a leading role in skills development and will be investing over R2,8 billion in training during the coming year. In the past year, more than 16 000 learners were trained in various scarce and critical skills learning programmes within the SOCs in the Department of Public Enterprises portfolio. Eskom also facilitated the training of 5 248 young learners through their key suppliers.
Eskom has secured an amount of R175 million from the Department of Higher Education and Training to train an additional 1 000 learners, who will be recruited across the provinces in the coming year. This will increase artisan learners at the Transnet training facilities to 3 000. In the coming year, we will also be focusing on further optimising the use of existing SOC training facilities to increase the number of artisan and technician trainees beyond the portfolio's requirements.
In July 2012 we launched the SOCs climate change response framework and all our SOCs' committed to the United Nations global sustainability compact. We have given the SOCs 18 months to design and implement their climate change strategies before they will be integrated into the shareholder compacts. In this regard, Transnet has aligned energy efficiency objectives with management incentives.
Eskom has a collaborative initiative with the SA Forestry Company Limited, Safcol, around the establishment of a charcoal manufacturing plant in Mpumalanga to lower Eskom's carbon emissions while promoting rural development; and SAA, under the leadership of the department, has established an aviation biofuels project in response to the threat of internationally imposed bio-fuel requirements.
The governance programme in the department is focused on undertaking targeted initiatives to operationally enhance the shareholder management model. Five deputy directors-general have now been appointed. The outstanding two have been recruited and their appointment is awaiting final Cabinet approval. When this is done, I am proud to say that five out of seven of our deputy directors-general will be female. [Applause.] The Deputy Minister will give further detail on some of our achievements and plans in the areas delegated to him.
In conclusion, I hope that I have demonstrated to you that our SOCs are a unique instrument of our developmental state and are systematically driving investment, industrialisation and transformation among their customers and suppliers, as well as in the broader economy. The benefits of this should be felt in the medium and long term by the ordinary people of our country. I believe that we are getting an extraordinary return on the capital that we have invested in them and they are worthy of our continued unflinching support.
I would like to thank Deputy Minister Magwanishe, the director-general, all the deputy directors-general and staff of the department for their relentless support and tireless work. I also wish to thank the Chairperson of the portfolio committee, the hon Peter Maluleka, the hon members of the portfolio committee and my Cabinet colleagues for their support and regular wise counsel. I hope that this EPC will join me in conveying our sincerest condolences to our Chairperson, the hon Mr Maluleka and his entire family, at the sad loss of his brother.
I further wish to thank the chairpersons, chief executive officers and, in particular, all the staff of our SOCs for their commitment to fulfilling the difficult goals and targets we set them, especially in this difficult economic climate. I humbly request the EPC to support this budget of R236 889 000 for our department, which has achieved nine consecutive clean audits. Thank you. [Applause.]